What we can learn from Yik Yak

To succeed as a startup you need a viable business model and great product/market fit (or crazy growth and a lot more time and money).

Unfortunately for Yik Yak they didn’t have either of those, and on Thursday they announced they would be laying off 60 percent of their staff.

If you’re not familiar with Yik Yak, it’s an anonymous messaging app that at one point was one of the top 10 most downloaded apps and had a presence at thousands of college campuses around the world. In November 2014, only a year after launching, the company raised $62 million from Sequoia Capital, bringing the total raised to $73.5 million and giving it a valuation of $400 million.

However, the service ran into problems. It faced the same bulling and hate speech problems common to other anonymous social media platforms. But, more critically, its user growth started to slow. What Yik Yak’s failure ultimately boiled down to was that despite creating an initially popular app, it didn’t have a mature understanding of its product/market fit. Compounding that, it didn’t have a business model (or much hope of developing one), and clearly $73.5 million wasn’t enough to make up for that once its growth disappeared.

This news is just another example of the dangers of focusing too much on your product (rather than the product/market fit) and not having a viable business model (or one at all). Sure, some of the biggest players in tech today started without a business model (think Google, Facebook, and SnapChat) but were able to create revenue streams when the time came to it; but they did so off the back of great product/market fit and growth.

If you are a pre-revenue startup and want to be successful without a clear way to generate revenue, you need to have a very mature understanding of your product/market fit — what makes your users happy, how do you grow that user base, and how do you keep them on your platform to achieve the growth you need — otherwise you are just relying on luck.

Yik Yak thought it had a great product and a captive market, but after a steep decline in growth and continued controversy the answer the team came up with was to reduce the level of anonymity on the platform. This decision was a clear indication it doesn’t understand its product/market fit and only exacerbated the original growth issues.

Yik Yak’s decline in growth should have been a clear warning sign to the team that it needed to look at its product/market fit and seek to understand the underlying link between its product and the market it was serving (hint: anonymity was a key component). By missing this, it missed the opportunity to successfully pivot or tweak its app and eventually build a viable business model.

While Yik Yak still has the ability to turn this around, it will need to carefully assess what the future will look like from a product/market fit landscape and how that is translated into a viable business model. Further, Yik Yak will have to be more perceptive, drawing lessons from its own experience and the issues that have plagued other startups in the volatile segment of anonymous social media.

Above all, Yik Yak’s story is a cautionary tale for startup founders and investors who don’t pay enough attention to the business model and product/market fit.

Todd Soulas is a senior consultant at Capgemini based in Canberra.